Regeneration Forum Get your house in order: success factors in refinancing

Transcription

1 Regeneration Forum 2014 Get your house in order: success factors in refinancing 0

2 Regeneration Forum 2014 Moderator: Nicholas Gazzard, CHF Canada Speakers this morning: Nicholas Gazzard: Overview of CHF Canada s objectives in support of our members Nick Sidor, CHF Canada, and Greg Playford, Devonshire Financial: CHF Canada s Co-operative Housing Refinancing Partnership Tim Welch, Tim Welch Consulting: Refinancing for Redevelopment: Options and Case Studies 1

3 1998: CHF Canada AGM Resolution: Planning for the Future WE RESOLVE: 1. THAT CHF Canada look into the operating environment that housing co-operatives will face after their government operating agreements come to an end and assistance to them under government co-op housing programs is discontinued; 2

4 1998: CHF Canada AGM Resolution: 2. AND THAT CHF Canada offer guidance and advice to its members on how they will be able to: make sure that their co-ops will remain non-profit housing associations in perpetuity, house members with low incomes without the benefit of the subsidies presently paid by government for that purpose, best preserve the continuing use of their lands for not-for-profit affordable housing, plan for the renovation or redevelopment of their co-ops after their current mortgages are repaid. 3

5 1998: CHF Canada AGM Resolution: This resolution was the genesis of what would become CHF Canada s 2020 Vision Program 4

6 Planning for the future Why were we thinking ahead towards the end of the agreements as early as 1998? Let s take a quick look at the time span covered by the co-op delivery programs 5

7 Willow Park Housing Co-operative 6

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12 Two federal co-op programs in the 1970s 1973: Section (now Section 61): projects hitting their 40s 1979: Section 56.1 (now Section 95): projects well into their 30s 11

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15 Federal and provincial co-op programs in the 1980s 1986: Federal Index-linked mortgage (ILM) program 1986: First Ontario provincial program launched Earliest projects in both programs facing 30 14

16 And in the 1990s: All programs were 15

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18 Planning for the future By 1998, the first co-op was now over 30 years old Many of the newer ones were starting to show their age Hence the CHF Canada AGM resolution. It focused on: The community The lands The properties And underlying all that, the finances Subsidy was starting to become scarcer 17

19 Planning for the future Fast forward 7 years later to 2005: 2020 Vision launched to help members build a sustainable future based on Good governance Sound management Environmental stewardship Long Term planning capital planning financial planning 18

20 Planning for the future Fast forward 7 years later to 2005: CHF Canada was already developing long-term planning tools. The idea of developing a CHF Canada lending capacity had its origins at the same time. 19

21 Planning for the future Fast forward to 2014: CHF Canada s long-term planning agenda today 2014 Key initiatives: 1. CHF Canada s Co-operative Housing Refinancing Partnership In place in partnership with credit union network Sustained increase on loans placed expected 20

22 Planning for the future 2014 Key initiatives: 2. Asset Management Planning Partnership with HSC Technical Services Under development with HSC Will offer comprehensive range of services: building inspections, BCA validation long term capital/operations financial plans maintenance planning project management will dovetail with refinancing program 21

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24 Refinancing Section 95 co-ops - Co-op housing refinancing partnership 23

25 What will you learn Why this program was developed Advantages of the program How the new program works CHF Canada s role Future plans for the program 24

26 Purpose of the Program Aging housing co-operatives need new capital for repairs, renovations, modernization CMHC s direct lending program is not available to them Re-financing is common in private sector real estate, and well known in the lending industry Purpose to provide a member service that helps co-ops borrow the needed capital, by way of a new mortgage, to do repairs/renovations immediately. 25

27 Program Development Approached credit unions through links to wider co-operative sector Alterna Savings worked with CHF Canada on standardized borrowing instrument Reached agreement in principle 2011; pilot projects in 2012 As well as normal mortgage security, CHF Canada has role in preparing and examining application, considering Credit Union offer, and monitoring borrower performance (soft comfort) 26

28 Refinancing in very plain language It means taking out a new mortgage, for an amount that pays out the existing mortgage plus an amount for the needed repairs, and extending it for a longer period of time. 27

29 Example (Actual Co-op) $28,000/month existing mortgage payment Existing CMHC mortgage of $1.8 million At 4.5% interest rate, co-op s borrowing $4.5 million Pays out CMHC mortgage of $1.8 million Leaves $2.7 million for repairs (covers 10 years of BCA-identified repairs) Amortized over 25 years New mortgage payment of $27,192/ month 28

30 Advantages for Co-op Repairs completed immediately Less disruption and lower maintenance costs compared to waiting for repairs/waiting for first mortgage to end before new borrowing Small or no impact on existing mortgage payment Avoids large housing charge increases to pay for needed repairs Dealing with a lender that you own (credit unions are financial co-operatives) 29

31 How the New Mortgage Works Credit Union offers co-op a new mortgage to pay off CMHC mortgage and pay for repairs CMHC Operating Agreement and subsidies continue until when the CMHC mortgage would normally end so, nothing changes Co-op s auditor will continue to report to the Agency or equivalent until the new mortgage is paid Co-op must continue memberships in CHF Canada, local CHF Canada member federation and credit union during the new mortgage 30

32 How the New Mortgage Works Mortgage Agreement with credit union has four parts Money for CMHC payout and repairs Capital plan with annual reserve contribution identified, to be updated every five years Annual report from CHF Canada to credit union on co-op s financial performance and capital plan Co-op agrees to facilitation by CHF Canada at lender s request if lender becomes concerned about governance or management, or financial performance slips 31

33 Business Case to Qualify Solid financial record (three years of audited financial statements) Ten Year Capital Plan Agreement with CHF Canada facilitation and risk monitoring Fit Maximum - 75% Loan to Value Cash flow to support 1.2x Debt Service Ratio To pass stress test of a 2% interest rate increase after first five-year term To pass stress test: Cash Flow When RGI Funding Ends 32

34 CHF Canada Support Help finalize key capital needs/costs Provide expert financial advice that calibrates: Borrowing for capital repairs/renovations Total borrowing (mortgage payout plus capital renewal from borrowing) Amount of monthly payment Ongoing repair/replacement needs and reserve contribution 33

35 CHF Canada Support Prepare application to credit union Review credit union s offer with co-op and negotiate any changes to: Interest rate Conditions Help handle the paperwork with co-op and credit union 34

36 CHF Canada Support Handle Agency and/or provincial government processes, CMHC approval process Organize three-way agreement between co-op, credit union and CHF Canada for loan monitoring (part of deal, gets better offer from credit union) Provide annual report to Credit Union, based on co-op s annual information return Intervene at lender s request if financial performance warrants 35

37 Current and Future Plans Four loans closed already, several more are very close Currently about 35 co-ops in the pipeline we expect that to rise significantly in the future Program process will be streamlined Will be marketed to over 400 Section 95 co-ops in our membership, most of whom will benefit from this program, with plans underway to reach out through education events, presentations, AGM Program is very successful and will become one of our signature member services. 36

38 The Consultant s Role Devonshire Financial - who we are. Relationship to CHF Canada and to the co-op What we need and how we review Recommendations to CHF Canada Support to Lender 37

39 Information Requirements 3 years audited Financial Statements Current operating statement and list of Housing Charges Copy of most recent mortgage statement Copy of the original Operating Agreement and any amendments Engineer prepared Building Condition Assessment with capital replacement or Reserve Fund analysis List of recent and planned capital expenditures 38

40 Review Process 1. Review financial statements and current housing charges to determine income 2. Determine current expenses from statements and current operating information 3. Determine actual Net Operating Income 4. Review BCA to determine priority capital works and costs. Determine work that needs to be done up front to make the reserve forecast positive over 10 year horizon 5. Add mortgage payout, prepayment penalty, capital works and fees and costs to get proposed loan amount 39

41 Review Process ( cont d ) 6. Apply expected interest rate and terms to loan amount to determine new payment amount. Compare to existing payments. 7. Redo analysis using Lender and CMHC underwriting norms. Determine debt coverage, an estimated valuation and loan to value. 8. Compare results to CMHC prepayment criteria and to expected lender s criteria. 9. Provide recommendations to CHF Canada and the member housing co-op. 40

42 Venture Place Housing Co-operative - Windsor BACKGROUND Six story V-shaped high-rise constructed in 1984 and contains 102 units with a mix of 1, 2 and 3 bedrooms Funded with a CMHC direct mortgage and receives subsidies under Section 95 NHA. Agreement expires and mortgage matured in December, 2020 In late 2012 completed a Building Condition Assessment that identified urgent works including new roof, garage waterproofing and exterior wall repairs. To fund these works, a new mortgage was required 41

43 Venture Place front view 42

44 Venture Place rear and courtyard 43

45 Venture Place - Analysis Existing mortgage was at 2.75%, but with a 9.5 year amortization payments were $33,002 monthly Balance was $2.6 million and maturity was Dec, 2020 A new mortgage was put in place to.. 1. payout existing balance $2,628, fund capital works (inc. HST, Contingency) 1,560, cover prepayment penalty (to CMHC) 78, CHF Canada fee, legals, Lender fees, other 83,300 NEW LOAN AMOUNT $4,350,000 44

46 Venture Place ( Analysis ) Income ( inc. CMHC subsidy ) $1,100,000 Expenses ( lender norms ) $515,000 NET OPERATING INCOME $585,000 Appraised Value $7,540,000 New $4,350,000 loan at 4.50% from local Credit Union... * monthly payments $24,076 ( vs. $ ) * debt coverage 1.38 x s * loan to value 57.7% 45

47 Why it works 1. CMHC prepayment criteria satisfied. a) Currently viable and viable after expiry of Agreement b) Major capital work required and need for funding c) Reserve fund in place to support identified repairs and renovations at least 10 years out d) Continuation of Operating Agreement to maturity 2. Co-op well managed, books and records good, members supported, no impact on housing charges 46

48 Why it works (cont d ) 3. Credit Union lending criteria satisfied. a) existing member, good financials and management b) necessary improvements, good debt coverage, satisfactory loan to value c) on-going monitoring to offset non-recourse 4. Agreement between co-op, credit union and CHF Canada provides for annual monitoring and reporting 5. Short amortizations result in higher payments and limit ability to fund repairs and reserves. New loan accesses capital, enhances reserves & creates stability going forward 47

49 Contact information CHF Canada Call or Linda Stephenson or Janet Shim at CHF Canada s Ottawa office / lstephenson@chfcanada.coop jshim@chfcanada.coop 48

50 Contact Information Devonshire Financial Non-profit housing providers or Service Managers can contact Devonshire Financial to discuss prepayments, refinancing and EOA options. Greg Playford (519) Jay Parry (519)

51 Any questions? 50

52 Regeneration Financing To Create New Housing Tim Welch Consulting Inc. February 10, 2014 HSC Regeneration Conference

53 New Housing Through Regeneration Absolutely need increased Federal and Provincial housing funding. but modest reality Challenge of creating new, additional housing as part of regeneration leveraging land and scarce financial resources

54 Approaches: Redevelop LHC Stock Many service managers looking at redeveloping older LHC higher operating costs, lacking accessibility energy and water inefficient Selling singles to leverage for new, increased # of units: Kawartha Lakes

55 Approaches: Redevelop LHC Stock Other SMs looking at larger redevelopment Waterloo Region Study on potential redevelopment of Region owned housing Propose rebuild some sites either by Region, or in partnership with others maintain RGI numbers, increase number of affordable units, introduce market housing Less than $30,000 per unit capital funds, plus land

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58 Approaches: Existing Social Housing With Expiring Agreements Some (not all) providers may be produce a surplus with expiry of operating agreements If capital reserves adequate, could remortgage to produce funds to help pay for new development Better financial potential to create new affordable units if able to add on existing property (infill, where possible)

59 SW Ontario federal non-profit Year 29 of 35 year operating agreement 60 unit development June 2015 mortgage up for renewal for final five years Remaining principal $720,000 Generally well maintained

60 SW non-profit Previously looked at small new development of 6-8 units using IAH funds but local waiting list long, wanting a larger new project Discussions with CMHC and SM about remortgaging in June 2015 Add approx. $850,000 to mortgage and amortize over 25 years Accessing expiry of operating surplus a little early

61 SW non-profit Currently $163,000 annual mortgage payments Current annual operating subsidy flowed by SM is $66,000 per year Refinanced $1.55 million at 25 years - $104,000 per year Estimate to use $200,000 for additional capital repairs/capital reserves (an updated building condition audit will be undertaken)

62 SW non-profit Leverage approx. $650,000 towards new development Hoping to access between $800,000 - $1 million in IAH funding Working on collaborating with community non-profit organization with approx. $ ,000 in equity Potential site for unit accessible building

63 Approaches: Use of Operating Surplus Cautiously consider use of operating surplus (not capital reserves!) More likely to support a few new units or add to the number of units created through IAH funding (or other capital funds) Halam Park Co-op is example

64 Halam Park Co-op, Hamilton Existing 92 unit townhouse with 2, 3, 4 bedrooms Issue of overhoused empty nesters wanting to remain in co-op but no 1 bdrms Municipally administered

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66 Halam Park Co-op Adding 8 one bedroom semis Co-op contributing $260,000 from operating surplus No payment of City development charges ($222,000) City providing $500,000 in capital funding from reserves focused on overhousing/ opening up spaces for large families New Community Forward Fund loan not registered on title

67 Halam Park Co-op Due to none of funding requiring registration on title, no need for severance or creation of parallel co-op corporation Additional challenge of land is part of TNRC land trust so a separate parallel approval process Waiting for spring thaw, final sign-offs to start construction in spring 2014.

68 Further Financial Enhancements Peterborough example of CIP (no DCs, parkland levy, and tax increment financing), achieve 90% affordability SMs flexible with existing rent supplement or portion of new IAH to increase affordability

69 Further Financial Issues Mortgage financing (challenge if no large IAH capital funding) Need Financing instrument for TIFs Continuing low interest rates Co-operation from MMAH/SMs when Ministerial consents required Challenge of significant effort for small number of units/small budgets